Years ago in business school macroeconomics, we learned that every economic boom is followed by a bust and every bust is followed by a boom. These booms and busts can be industry specific as well as geographic.
There has been an influx of reports in the media about the boom in domestic natural gas production as a result of fracking and the very low gas prices in the U.S. The natural gas boom, however, has had a negative effect on domestic coal consumption for electricity. Appalachian coal production has declined about 20 percent along with prices. The domestic natural gas boom and subsequent coal bust are related.
However, the natural gas boom and coal bust are specific to the U.S. Thus, much of the rest of the developed world like Europe are still under a different scenario of natural gas supply and higher gas prices. So it is not surprising that demand for U.S. steam coal, displaced domestically by cheaper natural gas, has increased overseas.
Strong demand for U.S. coal exports is in major overseas markets not served by low-cost natural gas. This includes Europe and, to a lesser extent, developing markets such as China. The increase in coal exports is taking up some of the slack from depressed domestic consumption. U.S. coal exports have doubled since 2009, reaching 120 million tons last year compared to 60 million tons in 2009.
The last noteworthy boom in U.S. coal exports in the early 1980s resulted in a big increase in plans for coal export terminals along the East and Gulf coasts. Construction on some coal export facilities were actually started but never completed.
But the current export boom is reviving interest in some of these mega coal export terminals. There has been a pickup in interest in the Lower Mississippi for new terminals that could receive coal by barge and rail. New coal export terminals on the Lower Mississippi would provide a big boost for the barge industry.
So, is coal a bust or boom? It depends on your market perspective. Domestically, coal is best characterized as a bust, but the export markets are booming. As a result, the barge industry should fare well.